India’s manufacturing challenge is not a mystery of intentions but of economics: policies have multiplied, but output, jobs and productivity have not risen commensurately. Manufacturing has hovered around roughly 15–17 percent of GDP for much of the last decade, well below the government’s long-stated aim of a 25 percent share. That gap matters because industrial growth is the conventional route to higher wages, broader tax bases and export diversification.

Analysts point to three interlocking problems. First, scale and productivity remain low. A large share of manufacturing activity is concentrated in small, informal units that operate with limited capital and weak linkages to modern supply chains. Investment in research and development is also modest—India’s total R&D spending is roughly 0.7 percent of GDP—constraining the move up the value chain. Second, costs and logistics blunt competitiveness. High logistics costs, complex state-level regulations on land and labor, and persistent power and transport bottlenecks raise the effective cost of producing in India relative to alternative Asian locations. Third, the labor market’s structure and skills mismatch prevent firms from scaling. Informality shelters many workers from formal contracts and benefits but also reduces incentives to invest in skills and automation.

The government has deployed an array of policy tools to address these frictions. The production-linked incentive program, launched in 2020, committed roughly Rs 1.97 lakh crore across targeted sectors to boost domestic manufacturing and attract investment. Investments in ports, roads and a digital push for compliance have improved the business environment in many states. Yet, as commentators Roshan Kishore and Abhishek Jha argued in Hindustan Times’ Number Theory column, these measures have been necessary but not sufficient: “incentives without integration into global value chains and sustained upgrades in firm capabilities will only deliver pockets of success,” they wrote.

Market implications are real and immediate. Global firms diversifying away from China since the pandemic have considered India, but many cite the need for predictable logistics, scale suppliers and skilled labor—conditions that are not yet consistently present. For investors, the opportunity is that India’s large domestic market and improving policy toolkit can create profitable niches in electronics, pharmaceuticals, chemicals and electric vehicles. The risk is that without faster productivity gains, manufacturing-led job creation will fall short, sustaining pressure on consumption-driven growth and keeping average wages suppressed.

Policymakers face trade-offs. Short-term subsidies and tax incentives can attract capital but will not substitute for durable reductions in friction: improvements in land markets, ease of doing business across states, and education and apprenticeship systems that close skill gaps. State-level competition that focuses on governance rather than only tax packages could magnify gains. Over the long term, the key metric will be productivity per worker in manufacturing and the depth of supplier networks—indicators that determine whether India can transition from assembly and low-margin production to higher-value manufacturing.

If India is to make manufacturing the engine of inclusive growth, success will come less from headline targets than from sustained structural reforms, deeper capital investment, and a focused push to integrate Indian firms into global supply chains. The stakes extend beyond GDP shares: they concern jobs, resilience to external shocks, and the country’s ability to raise living standards for a growing workforce.